Managing a cross cultural negotiation is a tricky and complicated affair at the best of times. When these negotiations occur in a foreign language environment it can be even more so, particularly if you allow yourself to become lost in the discussion.

It is easy to feel left out of the loop when those around you are in discussion using a language you don’t understand. You can feel distanced and become distracted, and it can impact on your natural communicative flow. Many challenges arise from the use of translators in business and it is how you manage these challenges that may well determine the ultimate success of your business negotiations. It is natural to ask yourself questions about the translators, questions such as:

How do you know they are translating everything as it is said? Are there side discussions? How are the ambiguous words translated? Can you trust your translator? Have they given away your business secrets? And of equal importance does the other negotiating party actually speak your language?

There are many more questions, but if you can have a strategy for dealing with and managing these questions then you will be well on the way to negotiation success. Use your own translators where possible. If you trust your translator, and they have a long history working with you, they will know what they can and can’t say. A good translator is hard to come by, but can become just as important as a deal broker.

Accept that if you don’t speak their language, then you are obviously going to be at a loss sometimes. In this instance you need to use your other senses to be able to pick up on the key business cues as they come out in discussion. Think of it this way, people who suffer from hearing loss or deafness can still communicate, and often their other senses are heightened to compensate. In a cross-cultural negotiation in foreign language, you too have to heighten your other senses. Finally use your time most effectively during the translation stages in the negotiation. What do I mean?

Normally when you are in business negotiations in your own language, you may be guarded in what you say and how you say it, concentrating mostly on ensuring you don’t say something offensive, unprofessional or let out a business secret. In addition to this you may be able to notice if the people across the table understand what you are saying, maybe, although it is often very difficult to pipck up the subtle cues. Only the most skilled negotiator can pick up the implicit cues given off in this situation. When you have a translator, you have the opportunity to watch and monitor the reactions of opposing side of the negotiation table. People naturally give off subtle hints when listening to new information, if you can take note of this then it will give you an edge. Watch for facial expressions, fidgeting, side discussions, and any note taking. These can all be indicators to the potential success or failure of your pitch. Using a Translator also gives you pause for reflection before you deliver the next section of your presentation or discussion, so after analysing the subtle reactions of your counterparts, you can adjust your speech accordingly.

If you stay calm and maximise your strengths in observations then you will give yourself the best chance of being able to navigate the challenges posed when negotiating in a foreign language environment.

In the past week there have been a number of statements out of China, related to the challenge of China securing sustainable Iron Ore supply into the future. These statements have been picked up by a number of international press outlets, however, each statement has been reported as a standalone piece of policy, or action, not a concerted or strategic positioning by China and the collective entities of the Chinese Steel Mills to increase their relative power in Iron Ore price negotiations.

I argued two weeks ago in my article “Iron Ore: It’s about the Balance of Power” https://nathanhgray.wordpress.com/2010/04/07/iron-ore-its-about-the-balance-of-power/ that the negotiation power was moving towards the Big Three major Iron Ore suppliers in Vale, Rio Tinto, and BHP Billiton, and that this was how they were able to push a majority of Steel mills to accept a move to short-term Iron Ore Pricing. The important thing to understand with this move to short-term pricing, is that Most does not equal all steel mills. We can assume, that although Some Chinese Steel mills have accepted this move to short-term pricing (at least in the immediate future), the majority are still holding out hope that there will be a return or continuation of the year long benchmark pricing system. So how are these Chinese Steel mills going to get the big Iron Ore suppliers back to the negotiating table?

Loading the Iron Ore Boat to China

The first step has been an ongoing process by the Chinese Government, and Chinese Steel industry as a whole. This has been through investment in iron ore mining facilities around the world, to try to secure a supply of iron ore independent of the big three largest suppliers. Where has this focus been? China has been investing heavily in Iron Ore mining exploration in Africa for example through Chinalco, and this has been in a number of joint venture operations with companies such as Rio Tinto in the Simandou Project in Guinea. Now you might point out that, Rio is one of the big three? But it is also the most financially leveraged of the three and keen for Chinese Cash. Joint venture investment in mines like Simandou helps improve Rio’s bottom line, while also giving China, Chinalco and the Chinese Steel Mills a useful bargaining chip. Clearly if Chinese Steel Mills can secure independent or guaranteed Iron Ore supply from outside the Three Big suppliers then they can redress the balance of power, restoring balance and securing better pricing terms for Chinese Steel mills. This is however a long-term proposition.

Mining Iron Ore at the Pilbara

The Second step in this process of increasing the bargaining power for China is through government investigation of monopoly behaviour by the big three. In the past week there have been two separate releases of statements about investigations of this kind. The first investigation is into the BHP Billiton – Rio Tinto joint venture Iron Ore mining operations in the Pilbara region of Australia. China clearly sees this as increasing the collective power of both BHP and Rio. This joint venture also came on the back of the collapse of the proposed increase in Chinalco’s investment into Rio Tinto in 2009. So there could also be some bad blood here, providing a political motive for an anti-monopoly investigation. The second anti-monopoly investigation muted only a few days ago is into the move towards short-term Iron Ore pricing by the big three: Rio Tinto, BHP and Vale. These two muted investigations can be seen as politically motivated to ‘encourage’ the Big Three to be careful in how they structure their pricing contracts. The message? China is watching.

China has always had a long-term outlook, and their approach to business, trade and investment is no different. The first step in securing new independent sources of Iron Ore is part of this long-term strategy, while the second step in suggesting the potential for anti-monopoly investigations is very much a short-term strategy to keep the Big three at the negotiation table. These two strategies can be interpreted as a discrete suggestion by the Chinese Government that the big miners should return to the negotiation table, and that an industry wide move to short-term pricing, will not be a sure thing, especially when it comes to China. It is all about attempting to redress the negotiating imbalance of power back in favour of the Iron Ore Buyers, and as a result Chinese Steel Mills.

Conducting business in China can be a confronting affair, with the rules of engagement vastly different from what we would expect in many western countries. The number one rule when conducting business in China is to take it slow, develop your reputation or Guanxi, and build your relationships with the people you meet, whether they be business or government officials. Business deals can be, and will be formed in a variety of locations and environments, and the relationships you develop at the Chinese banquet table can be crucial for long term success.

Banquet settings will obviously change depending upon the people you are meeting, the location of the banquet or the food variety on offer. However some things never or rarely change.

The banquet table will in many cases be a round table, large enough to seat up to 14 people. The host of the Banquet is the most important person in the room, and their seat will be at the head of the table…which at a round table may be against the wall, allowing for the host to look into the room and see all the guests easily. The next most important host will be seated directly opposite the host at the foot of the table. The most important guest will be seated to the right of the Host, with the second most important guest to the left. If Interpreters are required then they will be seated next to the guests, to allow for easier conversation. The third and fourth most important guests will be seated in a similar formation at the foot of the table. The other important hosts will be seated at the wings of the table. It is always best to wait until you are invited to sit at the table, this will allow you to observe how important you are perceived by the Chinese Host of the banquet.

Is it half full? or just enough?

On the table will be placed wine glasses, and a waiter will come around with a decanted wine (depending upon the company this could be beer, rice wine or barley spirit), and pour approximately two mouthfuls of wine (about 60mls) into each glass on the table. The head of the table will indicate that he is going to propose a toast, upon which everyone present should stand. The host will then propose a toast to enduring friendship and successful business and glasses should be raised and ‘clinked’ with each member of the banquet in turn, ensuring that the glasses were clinked as low as possible and gently. Once everyone has ‘clinked’ their respective glasses, you must drink the contents of the glass. The glasses will be promptly refilled as before, and the second host will propose a similar toast. The same ritual will then ensue. The Chinese Banquet is as much about drinking as it is about the food. The drinking is ritualistic and reinforces the hierarchy present at the banquet table.

Following the formal group toast, the host will likely toast the guest to his right, with a speech about friendship and a personal welcome, this will indicate to all that this guest is the

Ritual symbolism is everywhere in China

most important guest at the table. The ritual will then be carried out with the second guest. It is then likely that the host will propose a toast to the second host. This will reinforce that the second host is equally important, and essentially this has passed the baton to him to start his own round of toasts to the guests beside him. It is at this point that some food may start to appear on the table, for sharing. If you are going to China, learn to use chopsticks, as failure to adequately manage them will confirm to those present that you are indeed a Barbarian…..In essence it is not much different in western cultures to eating with your hands at a fine dining restaurant.

Conversation will be necessarily small talk and informal in most cases, and it is not appropriate generally to talk formally about business. The important thing is to build your relationship, and allow your host to understand who you are and what you stand for as a person. And this leads us to the final point in the art of the Chinese banquet. As in many cultures, alcohol is known to loosen the tongue, and so your host may strategically arrange toasts so that you drink more than you should, and then say more than you should. Hold your own, and try not to become too loud or obnoxious. There is no surer way of killing a deal than to be rude and offensive at the Formal Chinese Banquet.

Traditionally, since the 1960’s Iron Ore contract prices have been agreed with major steel mills in Europe, Asia and North America through year long benchmark pricing. The orginal reasoning for this year long pricing structure was to guarantee longer term contracts, at a time when the demand for iron ore was relatively low, and Japanese steel mills were searching for reliable and consistent supply. At this time, the negotiating power was definitely in the hands of the steel mills. As a result, they could demand a year long fixed price that would generally be below the iron ore spot price on metals markets.

In the past thirty years the world has seen the greater emergence of large developing economies such as China, who have shown a ferocious appetite for iron ore and steel production. As the global economy grew, and the Chinese and broader Asian economies expanded rapidly, the demand for iron ore has equally grown to the extent where there is now a gulf of variation between the benchmark pricing system and the spot price of iron ore on metals markets. Why is this gulf of difference so important now?

The power dependence relationship between the buyers and the sellers has changed. Where once the power was fundamentally held by the steel mills, the growth of steel mills in China has seen the competition for iron ore develop faster than supply can be increased. This increase in demand has been so rapid that the power now rests with the iron ore suppliers: Vale, Rio Tinto and BHP Billiton. Of course this power dependence shift has seen an increase in tension in iron ore price negotiations, characterised last year by the protracted and then suspended negotiations between Rio Tinto and the Chinese iron and Steel Association. The issue at hand with these protracted negotiations is that both sides have been playing hard ball, and because the suppliers now hold the balance of power, they have been able to hold out the longest without too much ill effect on their businesses. The 2008 benchmark price was high, to accommodate for the huge demand that was seen around the world just before the global economy imploded. In recent months we have seen the spot price of iron ore equally high, so the alternative pricing arangements for the steel mills are to stick with the 2008 price, or go to a high spot price until a benchmark price is agreed. You could say that this is a perfect negotiation situation for the iron ore suppliers. Steel still needs to be made, whether or not a benchmark price is agreed or not.

This situation has now led to the recently announced move to short term pricing on iron ore contracts, by both Vale of Brazil, and BHP Billiton of Australia. Short term pricing will more closely reflect the spot price, and is likely to be set quarterly not yearly as with the benchmark system. A change like this has not been agreed by all steel mills at this stage, but while the spot price remains high, and demand for iron ore equally remains high, there will be little alternative for steel mills than to adopt this new system. Short term negotiations do have its advantages for both steel mills and iron ore suppliers. It allows for regular adjustments to meet new economic environments whether high or low demand. At the same time, more than likely maintaining a short term price below the spot price for iron ore, which preserves the cost advantage to major steel mills. The question that will be asked by steel mills is whether this short term pricing system will overly favour the iron ore suppliers during negotiations?

The balance of power has definitely shifted to the iron ore suppliers, but ultimately the answer to that question will only be known in the long term. More importantly, some of the heat may now come out of the traditionally complex and protracted iron ore price negotiations.

The traditional caravan trading routes through central asia, linking China to Europe and the Middle East, are as exotic as they come, and the Uzbekistani city of Bukhara is first amoungst them when it comes to exotic mudbricked cities, bazaars, mosques and medrasses. In these cities and towns that have been trading with merchants and travellers for millenia, what better way to emmerse yourself in the cultural particulars of the region than to experience the art of buying a traditional handwoven carpet! But in buying a carpet there are many things to consider, such as a strategy that you will need to put in place…..

First of all you need to wander through the bazaars with total indifference to any of the shops, and or their wares. Soon enough a wiley shop keeper will have found out who you are, and will call, unseen from inside his shop “we have very special prices for Australians today”. Then a porty fellow will emerge from his door with an inviting smile stretching from ear to ear saying “please come inside for a quick look”. Having been suitably impressed with the shop keepers opening gambit, one should follow inside and sit on a couch/seat to await a quick showing of carpets until tastes are determined. Now it is important to point out that Uzbekistan is rather undeveloped and unsophisticated when it comes to carpet shops, rarely will you find a large plush showroom, and if you do find a large showroom it undoubtably will be lit by candlelight, making it feel like you are in a cave. So you must be preapred for small display rooms, but this increases the intimacy of the experience.

A Medrassa and the Kalon Tower, Bukhara

It is important at this point, before the carpets are all laid out, for the prospective buyer to announce that he has already bought many rugs from India, and turkey, and that you don’t actually need a carpet…as you’ve already got one! None the less you should be aware of the appropriate dimensions for the carpet that you are definetly not going to buy… This ensures you see the ones you want not some mishapen pieces that are of no interest. Choose the colour that will suit your room and then ask questions of the seller such as “is this sheep or camel wool??” and, “How many knots per square inch are in this carpet?” The more knots the easier the carpet is to bend and subsequently more supple your carpet will be. It also determines quality and as a consequence price. Then you must turn a corner of the carpet to determine the suppleness of the carpet, you may wish to ask for a magnifying glass to see the knots if one is not offered. It is also pertinent to enquire after the knotting method: one knot, one and a half or double knot. One should also walk upon the carpet to determine how nice it feels. This all adds to your credibility as a carpet buyer.

Once a carpet has been chosen, it is recommended that you reconfirm that you definetly don’t need another carpet at the moment. The shopkeeper may then offer to show you his house, and a few more carpets that are similar. One will then get in a car with the shopkeeper to see his house, his carpets, and his carpet making rig. You should ask about the family heritage of the carpet maker if it is a family business. The shopkeeper will tell you his father and grandfather were both carpet makers aswell, and that they are Uzbek/Afghani in heritage (Bukhara is only 250km from Afghanistan).

You should then reconfirm that the carpet in the shop was still your favourite, and that you will need another look. Upon return to the carpet shop you should ask if they can freight the carpet to Australia, should you decide to purchase, of course….even though you are not actually in the market for a carpet just now. “DHL, fedex or Uzbek mail??” will be asked, at which point you can find the price to Australia……after the carpet has been weighed. I would suggest that you ask now for a carpet price, even though you are not going to buy one just now…..you know as a matter of curiosity, given your experience in the carpet industry around the world. One can now suggest that you will go and may come back later after lunch. After you have perused other carpet shops in town and determined market value of carpets, you can return to the original shop for the price negotiation. Remember to factor in freight and taxes for a total cost. Then set your target price but be flexible, however have walkaway point. It is also important to remember that the people are generally poor, and any money you give will be put back into the local community.

It is now that the negotiation begins. The carpet in question will be rolled out once more. It is worthwhile at this point to search out flaws or errors in the carpet. Point these out. Then ask how you will be able to pay for this carpet, and in what currency. Remember that there is an official US dollar exchange and an unofficial rate that is much better. Don’t get caught out. The difference in price is 25%. Once this has been determined, then you should ask for the total price including freight to be negotiated. This will lead to a flurry of phone calls with the DHL agent to cut the external fat out of the price. Once this has been completed, one must announce that “it is still quite expensive” and that you “couldn’t possibly afford to buy the carpet at this price”. You will be told that this is the final price. At this point I would recommend you point out that Australia’s dollar is effectively worthless against the US dollar since the GFC. One should then offer a low price as an alternative. After some umming and arring a slightly cheaper price will be offered. The prospective buyer should then say their thankyous for the seller’s time and get up and leave…… At which point you will be stopped, and a cheaper price reached.

The Kalon Mosque and Tower, Bukhara

Once everything is satisfactory, you can make payment, and take photos of the carpet, this is to ensure that when your carpet arrives by post it is that one you actually bought. Then you will leave with the carpet seller to the Uzbekistan ministry of arts, culture and sport building, and be admitted by armed military guards. Try not to get too flustered by this show of military power…..The buyer will be ushered into a large room with a big desk for the appropriate minister to sit, and a smaller table in front for the buyer to sit. Behind desk are suitable Uzbek military propoganda posters and happy photos of the relavent dictator in both civilian and military attire. In the room will also be various other men, all suitably fitted out in Mafioso looking suits and black leather jackets. You will then be required to produce your passport, visas and residency status, and then be asked to sign at least 6 different forms………….in cyrilic.

Voilà!!! You now own a red camel wool carpet that hopefully will arrive home soon. Great fun buying carpets in Uzbekistan!!